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14 Sep 2022

Do You Get Taxed When You Sell Bitcoin?

It's not the most exciting aspect of Bitcoin investing, but if you buy, you should understand how crypto taxes work. Although cryptocurrencies are relatively new, the IRS is working hard to ensure crypto tax compliance. However, using an automated software website like https://bitcoinsup.pl for trading is easy to avoid crypto losses.

You might owe taxes on cryptocurrency in numerous ways, and even trading one virtual asset for another is a taxable event. It can be challenging to piece together your gains and losses at tax time if you don't keep accurate records. And, even if it's an honest mistake, failing to pay your crypto taxes can result in costly penalties.

What's the big picture? Digital assets you buy, sell, mine, or use to pay for goods and services may be taxable. Furthermore, if your employer or client pays you in cryptocurrency, the payment is taxable income. You must report your transactions in US dollars when you buy, sell, mine, or use cryptocurrency.

Is It Necessary To Pay Taxes On Cryptocurrency?

The IRS considers cryptocurrency a type of property rather than a currency. If you accept Bitcoin as payment, you must pay taxes based on its current value. If you sell a cryptocurrency for a profit, you must pay taxes on the difference between the purchase price and the sale proceeds.

However, how you calculate crypto taxes depends on your circumstances. Here's how it all comes down to:

If you obtained a Bitcoin (or a portion of one) through mining, the value is immediately taxable; there is no need to sell the currency to create a tax liability.

If you sold or used cryptocurrency by cashing it out on an exchange or purchasing goods and services, you will be required to pay taxes if the realized value is greater than the price at which you bought the cryptocurrency. You may have taxable capital gains at either short-term or long-term rates.

How Do You Report Cryptocurrency Taxes?

Though crypto tax regulations have changed in recent years, the onus remains largely on individuals to keep track of their gains and losses. Keep meticulous records to ensure you stay on the right side of the law.

You'll need records of your cryptocurrency's fair market value when you mined or purchased it and its fair market value when it was used or sold. This information will help you in counting your Bitcoin taxes.

That data is not easily accessible. If you bought and sold stocks, for example, your broker would send you a Form 1099-B indicating the cost basis of your transaction. However, with cryptocurrency, you may not receive one part of why many people are unaware they are liable for crypto taxes. In 2023, the federal government will begin requiring cryptocurrency brokers to submit these forms.

If you make more than $20,000 in payments and have 200 transactions in a year, a Form 1099-K may be issued. However, you have to meet both conditions, and many people are unlikely to use Bitcoin or other cryptocurrencies 200 times per year. You must still pay tax on any gains whether you exceed these thresholds.

Can You Deduct Crypto Losses?

Crypto taxes are annoying, but at least you can deduct capital losses on Bitcoin or other digital assets like you would for losses on stocks or bonds. You can use these losses to offset further capital gains from sales, and you can't write off a loss of more than $3,000 once you've tallied your winners and losers.

Many speculators will suffer losses as cryptocurrency prices fluctuate dramatically. If you have Bitcoin or other cryptocurrency losses, declare them on your tax return and see if you can reduce your tax liability.

 

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